EURUSD long close to the target, eyes on U.S. CPI data now

Macroeconomic overview:

• The European Central Bank should revisit its communication stance in early 2018, accounts of its December meeting showed, suggesting that policymakers could soon start preparing markets for the end of the bank's massive stimulus scheme.

• With the euro zone seeing its best growth in a decade, the ECB should gradually shift its stance to avoid a more disruptive move later and should look at a broader revision of its policy guidance to reduce the focus on bond purchases and raise the emphasis on interest rates, the accounts showed.

• "The language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited early in the coming year," the accounts showed, referring to 2018. "The view was widely shared that... communication would need to evolve gradually, without a change in sequencing."

• Sidelining his critics, ECB President Mario Draghi stuck to his pledge last month to keep money pouring into the euro zone economy for as long as needed, despite improved growth and inflation prospects.

• But growth is into its fifth year, employment is at a record high and convergence between the 19-member currency bloc's core and periphery has restarted, all pointing to unabated growth and a declining need for central bank help.

• Indeed, while policymakers suggested a gradual and careful shift, they argued for a guidance comprising the broader policy stance, a move that would signal the declining importance of bond buys and seen by some as a precursor to ending asset buys.

• "As progress was made toward a sustained adjustment in the path of inflation, the relative importance of the forward guidance on policy rates would increase," policymakers said.

• With euro zone output eliminating spare capacity this year, policymakers argued that no further easing in financial conditions was needed, and some even warned about the ECB falling behind the curve.

• "It was important for the forward guidance to be updated in line with evolving data with a view to avoiding more abrupt or disorderly adjustments at a later stage," the ECB said.

• Some policymakers are already openly discussing life after the quantitative easing scheme ends, suggesting growing support for a decision to wind down the programme later this year.

• The accounts suggested the first change might be dropping a pledge to buy bonds until inflation heads back to target. Running at 30 billion EUR per month at least until the end of September, the bond buys are expected by investors to end this autumn after a brief tapering period.

• The euro surged above 1.21 to a three-year high Friday on bets the European Central Bank is getting ready to wind down its huge monetary stimulus, and after German Chancellor Angela Merkel reached a deal that should lead to the formation of a "grand coalition" government.

• New York Fed President Bill Dudley gave an upbeat speech on the economic outlook. While he reiterated that three hikes in 2018 are a reasonable starting point for the outlook, he highlighted the risk that the economy could overheat in the next few years. Accordingly, the Fed should continue to gradually normalize its policy stance even as inflation is running below the 2% target.

• Today, the key release will be the December CPI, which likely rose a moderate 0.1% mom as energy prices eased at the end of last year. As a result, the headline inflation rate would decline back to 2.0% yoy from 2.2%. The CPI ex food & energy should have increased 0.2% mom, leaving the core inflation rate unchanged at 1.7% yoy. Following yesterday's soft PPI report, the risk to our forecast seems to be tilted somewhat to the downside. Retail sales should have risen a solid 0.4% mom in December, mostly reflecting a strong holiday shopping season and 2% growth in car sales.

Technical analysis and trading signals:

• EUR/USD bulls are in the driving seat having taken out the 1.2097 Fibonacci level (38.2% of the 1.4940 to 1.0340 fall), a level which had for months frustrated bulls. Tenkan and kijun lines are positive aligned, reinforcing the upside bias.

• Our long is close to 1.2150 target.

 

TRADING STRATEGIES SUMMARY:

FOREX - MAJOR PAIRS:

FOREX - MAJOR CROSSES:

PRECIOUS METALS:

 

How to read these tables?

1. Support/Resistance - three closest important support/resistance levels

2. Position/Trading Idea:
   BUY/SELL - It means we are looking to open LONG/SHORT position at the Entry Price. If the order is filled we will set the suggested Target and Stop-loss level.
   LONG/SHORT - It means we have already taken this position at the Entry Price and expect the rate to go up/down to the Target level.

3. Stop-Loss/Profit Locked In - Sometimes we move the stop-loss level above (in case of LONG) or below (in case of SHORT) the Entry price. This means that we have locked in profit on this position.

4. Risk Factor - green "*" means high level of confidence (low level of uncertainty), grey "**" means medium level of confidence, red "***" means low level of confidence (high level of uncertainty)

5. Position Size (forex) - position size suggested for a USD 10,000 trading account in mini lots. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size). You should always round the result down. For example, if the result was 2.671, your position size should be 2 mini lots. This would be a great tool for your risk management!
   
   Position size (precious metals) - position size suggested for a USD 10,000 trading account in units. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size).

6. Profit/Loss on recently closed position (forex) - is the amount of pips we have earned/lost on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
   
   Profit/Loss on recently closed position (precious metals) - is profit/loss we have earned/lost per unit on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.